From ‘Why’ to ‘Why Not’ – Sustainable Investing as the new normal
McKinsey & Co.
Let’s not be so caught up in the bad we missed the good
2020 was a pretty (very) cool year for milestones in the world of sustainability, climate action and business. Here are just a few worth mentioning.
- May 2020 – David Attenborough turned 94
- July 2020 – the UK’s largest pension fund the National Employment Savings Fund began to divest of its fossil fuel investments and reduce its carbon-intensive holding
- August 2020 – an updated Environmental Bill was published. After cementing its 2050 net-zero target in law, the UK Government (DEFRA) is developing similar legally binding time-bound, numerical targets for i) biodiversity, ii) air quality, iii) water and iv) waste. All targets will have deadlines for the mid-to-late 2030s and will be backed up with interim targets that will not be legally binding, to help spur early progress.
- October 2020 it was announced NextEra, the world’s largest provider of wind and solar energy is now more valuable than oil company Exxon Mobile Corp (Market value of $145 billion compared to Exxon’s $142 billion);
- December 2020 Amazon surpassed Google to become the largest procurer of renewable energy with energy under contract of 6.5GW compared to Google’s 5.5GW clean procurement. I actually love that phrase ‘clean procurement‘ (not my own).
These achievements are not just a one off, it’s happening every year, every month, everywhere when you look for it.
The Paris Agreement Framework
Of course, the other significant event to end 2020 was celebrating the 5th anniversary of the Paris Agreement. The Paris Agreement, its pledge, more than that its legally binding obligation, is one of those iconic global treaties made my 197 countries, which took 25 years to negotiate, that every human should know about, for the fundamental sake of our existence. It is the most serious stuff.
Simply its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.
This is where my passion for the law shines through; that this blog, if nothing else, makes readers aware of, at a very top level, the important legal instruments that exist and to have you want to have an awareness. The rest you can go away and learn about.
The word ‘COP’ (Conference of the Parties) floats around our house regularly, along with references to ‘GW’, ‘bps’, ‘solar & wind’ given my husband leads a renewable energy investment team at an infrastructure fund. I’m jealous he got to attend COP23 in Bonn, Germany. It’s a powerful event with strong presence and a global stage to look back and face forward at all climate change goals, country by country.
Sadly, COP26 was cancelled last year, but there was a virtual event hosted by the United Nations, France, Britain, Italy and Chile which saw over 70 countries connect to discuss climate action progress and long term ambition.
I also recently watched a seminar hosted by the French Embassy in London together with the French Institute, moderated by Fiona Harvey from the Guardian which celebrated the 5th Anniversary of the Paris Agreement.
If you have 100 minutes spare in your life to watch or listen to something informative, it’s worth a watch (but it is a deep dive into climate change)! Some imminent guest speakers include HRH Prince of Wales, Alan Jope (CEO of Unilever), Anne-Marie Trevelyan, UK COP26 Champion for Adaptation and Resilience and President Laurent Fabius, who led the negotiations leading to the Paris Agreement (his account of being present at the time is truly inspiring).
These individuals are all impressive in their own right and what an insight to listen to them speak.
Personal and Corporate Sustainability
Sustainability is a topic that is unavoidable for any business, any size and for all individuals with any grain of social or environmental conscience. It’s everywhere; it’s placing countless Amazon orders and storing an impressive amount of cardboard, too embarrassed to even leave it outside your home for recycling; it’s the car you drive, the amount of meat you eat and how many holidays you take.
For businesses, it’s being forced to look at how biodiversity is impacting how it grows vines or tomatoes and its terroir; how its supply chain transports goods in diesel lorries; or how responsibly it regulates its brand touch points with consumers.
At the end of 2020, Amazon announced it had ordered 1800 electric vans from Mercedes as part of its Climate Pledge, established in 2019 to achieve corporate net-zero emissions status by 2040. There is also the ‘Race to Zero’ which is a coalition of entitles committed to achieving net zero emissions by 2050.
For consumer goods businesses, transports, logistics and warehousing is one of the most critical pieces of infrastructure. Yes, the creative marketing teams find brilliant ways to connect to consumers through its campaigns but I always feel the operations teams are the unsung hero’s of these FMCG type businesses.
There are also pros and cons for owning your supply chain; if you do and you make tomato sauce or wine, your challenge to achieve net zero or to present a truly clean supply chain will be quite the long term challenge which stems from your ability to grow the ingredients and support the growers and pickers, to delivering the goods to Tesco warehouses. But what a marketing story. What a feel good conscience. What a great result to present to investors.
Talking about marketing teams, one example which uses climate change to ultimately push its brand is Ben & Jerry’s Ice Cream creating a new flavoured ice cream; “Save Our Swirled”. As an ex-lawyer for Ben & Jerry’s I can back that sustainability is ‘by design’ and runs to the core of the brand. Being true and genuine is integral to a brand’s story.
Take a look at this Ad for “Save Our Swirled”
Do Investors Care?
They care. More institutional investors recognise environmental, social and governance factors as drivers of value. It’s all about ‘disclosure’ and you will hear this over and over in annual general meetings and investor relations. Environmental, social and governance (ESG) information is now critical for investors as well as having a public interest to be disclosed.
The scrutiny is not only coming from the growing market of responsible investors; mainstream investors too are looking more closely at ESG as they begin to look beyond short term investment to the creation of longer term shareholder value.
You only have to look at the Tesla case study to be convinced of the value of ESG in shareholder value. In 2020, based on Tesla’s electric vehicle capability (not historical sales), the company was valued at more than Coca-Cola, VW, Merck and Toyota with a market cap valuation of near $210 billion (and as of last night, 7 January 2021 has a market cap value of $770 billion).
Businesses and shareholders now can procure consultancy services to assess and analyse ESG expectations, priorities and quality. As mentioned earlier, divestment by funds and investors of coal related or fossil fuel related companies which were once global giants and the most valuable globally is a serious threat to these businesses.
One should therefore feel confident dispelling any market rumor that sustainability and economic growth are not compatible. It’s an exciting proposition.
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